If you’re living in Texas and a senior homeowner aged 62 or older, then it’s worth knowing that a reverse mortgage can unlock many years’ worth of your home equity into cash, all without selling your home or making monthly mortgage payments. However, since every lender offers reverse mortgages a little differently, and Texas has unique constitutional requirements that come into play, working with an experienced, licensed reverse mortgage company can make a big difference.
Read on to learn more about reverse mortgages in Texas, how to select a lender, and how to steer clear of common first-time borrower mistakes.
What Is a Reverse Mortgage?
A reverse mortgage is a special type of loan that enables homeowners to access the accumulated wealth or equity in their principal residence. This can be in the form of an immediate cash payment (lump sum), a line of credit, or regular monthly payments. Unlike a traditional mortgage, interest accrues over time, but no monthly principal payments are required on the loan.
In fact, the balance of the loan rises and, if not repaid, is settled once the home is sold, or the borrower leaves permanently or dies.
A common example of a reverse mortgage is the Home Equity Conversion Mortgage or HECM, which is backed by the Federal Housing Administration (FHA) and available through private lenders approved by the FHA in Texas.
Reasons Why Texas Reverse Mortgages Work a Little Differently than Others
Because Texas has some of the best homestead protection laws in the nation, these same protections apply to reverse mortgages. As a result, Texas has a few additional protections not found in other states:
In-person closing. Under Texas law, a reverse mortgage must close at a lender’s office, attorney’s office, or title company-and never at the home of the borrower.
Required counseling: Borrowers are required to complete HUD-approved reverse mortgage counseling before submitting an application to ensure they fully understand the loan terms.
Non-recourse protection: At payoff, if the mortgage balance is greater than the home’s appraised value, the borrower or their heirs will not owe more than the home’s appraised value, even if the mortgage balance exceeds it.
Spouse protections: Even if your spouse is not a borrowing spouse, the HECM rules allow you and your spouse to stay in the home following the death of the borrowing spouse if you meet the following criteria:
Due to these state-specific regulations, dealing with a reverse mortgage provider in Texas who is familiar with those rules rather than an impersonal national call center will make things a lot easier.
Best Reverse Mortgage Types that are Available in Texas
HECM (Home Equity Conversion Mortgage): the most popular. Insured by FHA, it is available to a homeowner aged 62 and over with enough home equity.
Proprietary (Jumbo) Reverse Mortgages: These are available through private lenders and are for higher-valued properties than the Federal Housing Administration (FHA) limits.
Single-Purpose Reverse Mortgages: Usually underwritten by state and local government programs to meet a specific need, such as repairs or taxes.
Who Qualifies for a Reverse Mortgage in Texas?
Most lenders in Texas have the same eligibility criteria, though the amount you are eligible to borrow and the rates will differ according to the individual lenders. In general, you will require the following:
- Be a minimum of 62 years of age (or have a co-borrower who is)
- Own the house free and clear or have substantial equity
- Live in the home. Use your home as your main residence
- Be aware of property taxes, homeowners insurance, and HOA fees
- Complete HUD-approved reverse mortgage counseling
- Satisfy a financial test that you will be able to afford taxes and insurance in the future
Pros and Cons to Weigh
Advantages
- No monthly mortgage payments required
- Flexible payout options: lump sum, line of credit, or monthly income
- The non-recourse feature means that heirs do not have to pay more than the value of the home
- Anybody can use the money to do anything they like, such as pay off your existing mortgage
Considerations
- Loan balance increases as time progresses and interest accumulates
- Upfront costs associated with mortgage insurance premiums and any other mortgage origination fee may be higher than in a traditional refinance
- Less home equity inheritance allowed
- Borrower is also responsible for maintaining a house-paying property taxes, insurance, and putting money toward maintenance
Process to Choose the Right Reverse Mortgage Company in Texas
Considering the number of reverse mortgage lenders vying for your business in Texas, it makes sense to consider more than just the advertised interest rate. Here is what makes a good reverse mortgage company different from a bad one:
- Texas SML licensing: Verify the company maintains a valid Texas Mortgage Company License issued by the Texas Department of Savings and Mortgage Lending and NMLS registration.
- Clear explanation of the costs: An honest lender will explain the origination charges, mortgage insurance premiums, servicing fees, and closing costs without jargon, and ensure that you understand them before you sign.
- Availability of different types of loan products: The best companies have HECM, proprietary, and refinance options to offer, not just push one loan product even if not suitable for your situation.
- Knowledge of local market: Lenders familiar with Texas homestead law, county-wise property tax regulations, and regional home values will be able to tailor a loan that truly suits your situation.
- Very good reviews and experience: Check out verified reviews on Google, Zillow, and BBB. Also, ask the age of the company originating reverse mortgages in Texas.
Here is a way to figure out your numbers for free before you fill out an application: A decent mortgage broker can walk you through a reverse mortgage calculator, so you can get an idea of what you will qualify for prior to submitting an application or having to undergo a credit check.
What Reliance Financial Offers in the Journey of Reverse Mortgage in Texas?
Reliance Financial is a licensed mortgage company that offers services to homeowners throughout the state of Texas, from Dallas and Houston to Austin, Fort Worth, San Antonio, and Plano. Unlike most mortgage companies that try to steer borrowers into only one product or financing source, the team compares options from many wholesale lenders to fit the best rate and product to the homeowner.
If you are a Texas homeowner looking into a reverse mortgage, Reliance Financial has a couple of benefits for you to consider:
- Expert advice: One-on-one session with a loan officer to run through your eligibility, how and where to receive the payout, and associated costs.
- No pressure, no hidden costs: Rate quotes have clear up-front information, and there’s no commitment for a free consultation.
- Free reverse mortgage calculator: Homeowners can test drive their own numbers online to determine an estimated payout prior to talking to anyone.
- Statewide Texas coverage: Reliance Financial has loan officers knowledgeable of all areas of the state. So no matter whether you’re in a big metro or a smaller TX location, rely on us to meet your needs.
Reliance Financial, with NMLS# 309198, is an authorized mortgage company in Texas; SML licenses it.
Final Thoughts
A reverse mortgage allows Texas residents 62 and older to remain in their home while converting accumulated equity into accessible cash. In short, before choosing a lender, be sure to ask if they provide:
- They show a detailed, transparent breakdown of every fee and rate
- Their variation among loan offerings, not a single, uniform pitch
- Make sure they follow guidelines on counseling and closing rules as they apply to Texas
- Authentic reviews and a known local reputation
Choose a reliable Texas lender, such as Reliance Financial, and get guidance on comparing programs so you can be assured that a reverse mortgage is right for your retirement needs.
FAQs
What is the amount of money I will be able to receive with a reverse mortgage in Texas?
Your maximum reverse mortgage amount is determined by your age, home’s value, current interest rates, and any remaining mortgage balance. Older borrowers who have a larger equity cushion generally will be given a greater reverse mortgage.
Do I still own my home with a reverse mortgage?
Yes, you keep the title, and it’s still in your name. You’re just borrowing against your equity while you keep paying your taxes, insurance, and maintenance.
Can I lose my home with a reverse mortgage?
Foreclosure is a possibility if you neglect paying your property taxes or insurance, neglect caring for the home, or if you don’t use it as your primary residence.
How much does a reverse mortgage cost in Texas?
Costs of buying the property include…origination fee, mortgage insurance premium, appraisal fee, and closing costs, which add up to an estimated 2% to 5% of the home’s appraised value in total.
Can my heirs keep the home after I pass away?
Yes, heirs can pay off the loan balance, refinance, or sell the home. Non-recourse protection means they can never be held responsible for more than the value of the appraisal.
Is reverse mortgage income taxable?
No. Proceeds are technically loan advances and not income, and thus they are not taxable. However, speak to an accountant about your specific situation.
